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Objective of financial reporting

The objective of financial reporting is to track, analyze and report your business income.

The purpose of these reports is to examine resource usage, cash flow, business performance

And the financial health of the business. This helps you and your investors make informed

Decisions about how to manage the business.

What are the objectives of financial reporting?

• the objectives of financial reporting are as follows:

• to provide useful information to the users of financial reports. The information should be

Useful from a number of perspectives, such as whether to provide credit to a customer,

Whether to lend to a borrower, and whether to invest in a business. The information should be

Comprehensible to those with a reasonable grounding in business, which means that it should

Not be laced with jargon or burdened with so much detail that it is impossible to extract the

Essentials about a business from its financial statements.

• to provide information about the cash flows to which an entity is subjected, including the

Timing and uncertainty of cash flows. This information is critical for determining the

Liquidity of a business, which in turn can be used to evaluate whether an organization can

Continue as a going concern.

• to disclose the obligations and economic resources of an entity. There should be an emphasis

On the changes in liabilities and resources, which can be used to predict future cash flows.

Accounting information users and

Their needs

Users of accounting information and their needs

1. Owners

2. Customers

3. Suppliers

4. Managers

5. The lenders

6. The government and its agencies

7. The financial analyst and advisors

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8. The employees

9. The public

Owners

• the management team needs to understand the profitability, liquidity, and cash flows of

The organization every month, so that it can make operational and financing decisions

About the business.

Customers

• when a customer is considering which supplier to select for a major contract, it wants

To review their financial statements first, in order to judge the financial ability of a

Supplier to remain in business long enough to provide the goods or services mandated in

The contract.

Suppliers

• suppliers will require financial statements in order to decide whether it is safe to extend

Credit to a company.

The lenders

• an entity loaning money to an organization will require financial statements in order to

Estimate the ability of the borrower to pay back all loaned funds and related interest

Charges.

The government and its agencies

• a government in whose jurisdiction a company is located will request financial

Statements in order to determine whether the business paid the appropriate amount of

Taxes.

The financial analyst and advisors

• outside analysts want to see financial statements in order to decide whether they should

Recommend the company's securities to their clients.

The employees

• a company may elect to provide its financial statements to employees, along with a

Detailed explanation of what the documents contain. This can be used to increase the level

Of employee involvement in and understanding of the business.

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The public

• financial statements may assists the public by providing information about the trend and

The range of its activities

Sources of accounting standards

What are the sources of accounting standards?

Accounting standards are authoritative standards for financial reporting and are the primary

Source of generally accepted accounting principles (gaap). Accounting standards specify how

Transactions and other events are to be recognized, measured, presented and disclosed in

Financial statements.

Accounting standards in the philippines are adopted by the philippines financial reporting

Standards council (pfrsc) and approved by the securities and exchange commission (sec). The

Pfrsc has formed the philippine interpretations committee (pic), which issues implementation

Guidance on pfrss.

Various sources of accounting standards

➢agency of the federal government (notably the securities and exchange commission and treasury
department).

➢state regulatory commissions

➢public accountants

➢quasi-public accounting standards-setting boards (the committee on accounting procedures (cap)

➢the accounting principles board (apb)

➢the financial accounting standards board (fasb)

➢corporate managements

➢international financial reporting standards (ifrs)

➢financial reporting standards (frs)

➢international accounting standards (ias)

➢international financial reporting interpretations committee (ifric)

Financial reporting framework

The financial reporting framework is a set of criteria for financial reporting meets
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Accounting standards. These criteria are the basis for defining the measurement,

Recognition, presentation, and disclosure of all materialitems in a financial statement.

The framework is vital to ensure that the financial statement meets its users’ needs. It can

Also help in developing accounting policies for uncovered transactions or events in the

Existing standards. And, in the context of the business as a whole, it is to reduce the cost of

Doing business, simplify and improve compliance with financial reporting standards.

Two examples of financial reporting frameworks are:

• international financial reporting standards (ifrs)

• generally accepted accounting principles (gaap)

Role of external auditors

• an external auditor reviews the financial information of a company and reports on

Findings. The external auditor is responsible for investigating financial statements for

Errors and fraud, performing audits on operations, and reporting on findings, and

Providing recommendations.

• an external auditor is typically responsible for providing an independent opinion on the

Integrity of a company's financial statements, although they can be used to provide

Additional audit services